After several months of intense review and work with its investment consultant, Wilshire Associates, the Fund adopted a new asset allocation plan that sets percentage targets for the Fund's different asset classes. This task is made all the more difficult by the fact that the Fund must strike a balance between the risk it will take and the return it requires. Typically, the higher the return, the higher the risk. The new goals are: domestic equities, 41%; international equities, 10%; domestic fixed income, 35%; real estate, 8%; alternative investments, 1%; emerging markets equity, 5%.
The changes represent a realization by the Fund of the importance of diversifying the investments of the Fund into the best investments available. Only very recently was statutory authority given for investments in foreign securities or "emerging" market countries, allowing the Fund to keep pace with the institutional investment community which has moved strongly into these areas. Senate Bill 82 which became effective in December, 1996 gave the Fund the ability to invest in high yield bonds and alternative investments by changing the standard for investments to that of a "Prudent Person" authority. Essentially this means that if a prudent person in like circumstances would invest, it is acceptable for the Fund to do so.
The Fund will review the allocation plan in one year to revisit all asset classes. Conducting another review so soon will put the Fund in a position to react swiftly to attractive new asset classes and be poised to make the best possible investment decisions.
Although market gyrations in the past few weeks may have shaved a little off the total, the Fund can claim to have crossed the $7 billion mark in fund assets. This is particularly significant when viewed against the fact that the Funds assets were in the mid-$4 billion range as recently as 1994. While strong markets have played a big part in this gain, credit must also be given to a well-run investment program.
The Health Care Stabilization fund has reached about $240 million and cost savings over the last several years will allow the Fund to delay dipping into this account, which had been predicted to begin in 1997.
In addition, the menu of choices will be expanded by offering four new HMO programs and by offering vision, dental and hearing coverage to Medicare eligible participants who enroll in these HMOs. The Fund will also offer the Delta Dental Plan, which we feel affords excellent dental coverage.
The Disability Committee met to finalize details about the new disability hearing procedures. Contracts with physicians who will examine claims on behalf of the Fund are being completed. In addition, agreements with those outside professionals who will serve on the Disability Evaluation Panel (DEP) have been concluded. The Panel plans to be ready to evaluate applications beginning in November.
Executive Director, Allen Proctor, updated the Board on the Fund's continuing outreach program. He recapped his recent meetings with The Ohio Association of Chiefs of Police and The Ohio Fire Chiefs Association. In the near future he will meet with the Ohio Municipal League and the Police and Fire Retirees of Ohio.
Eric France recently joined the Fund as a manager of the fixed income portfolio. He brings a great deal of experience to the job of managing the Fund's holdings in corporate and government bonds, having most recently held a similar position at the Bureau of Workers Compensation. Prior to that, Eric was part of the team that managed the fixed income portfolio for the State Teachers Retirement System. His deep experience will allow the Fund to make informed and professional investment decisions in this area with the expectation that performance will meet or exceed the industry indices.
The new portfolio manager gave the Board of Trustees a briefing on his investment style and discussed his ideas for the portfolio that he will implement over the coming months. He was given a warm welcome by Chairman Walter and the rest of the Board.
The Board spent time preparing for its third annual retreat. As in the past, the Trustees will spend several days at a state lodge where they will devote their uninterrupted effort to the retreat agenda. This year, in keeping with the many changes going on at the Fund, the Trustees will focus on the topic of "Governance." They will work to develop a stronger understanding of` how and how not to govern themselves and the Fund.
The retreat will be facilitated by several staff members of the Segal Company, a nationally known pension consulting firm. They will be led by Cathie Eitelberg who claims as much public pension fund expertise as anyone in the country. She has written extensively and spoken frequently on pension matters.
One of the results of the recent elevation of our dialogue with the General Assembly was a signal from the legislature that it agreed that much of the change at the Fund should be embodied in the Fund's rules and not in statute. In that regard, to insure uniformity and compatibility, the Fund has begun a systematic review of the existing rules at the same time as it prepares new rules.
The Joint Committee on Agency Rule Review recently approved the Fund's new rule setting out the guidelines and procedures for disability determination. At the same time the Board approved the filing of two rules, one of which expands the public notification process, the other updates the "Rule on Rules" which provides for how the Fund writes new rules. Once the new rule becomes effective, recipients of this report will receive notice of the amendment, recission, or adoption of rules. Notice will also be added to the Fund's quarterly newsletter.
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